Question 2
There are 50 low-risk people in a town and 50 high-risk people. A low-risk person has an average of $500 in medical expenses each year and is willing to pay $800 for medical insurance (this person is risk averse). A high-risk person has an average of $1,200 in medical expenses each year and is willing to pay $1,500 for medical insurance. Insurance companies are unable to differentiate who is high-risk and who is low risk.
Based on the above data, answer the given subquestions.
If the insurance company offered medical insurance at a price of $1,300
low-risk people would not be insured
Total surplus will be $10000 if the price is $1300
Both low-risk people would not be insured & total surplus will be $10000 if the price is $1300
None